Tax season is right around the corner, and foreigner-owned businesses are not exempted from filing. As stated in Philippine laws, taxes are imposed on the income of citizens and aliens that are earned from sources within the Philippines. This goes for all income generated from business operations in the Philippine economic zone. Do note, however, that the tax rates on foreigners will vary depending on the nature of income earned, whether compensation income, income subject to final tax, or business income.
Compensation tax rates
These are taxes levied on resident aliens and non-resident aliens who do business and receive compensation income generated or made in the Philippines. The rates apply as follows:
– 0% tax rate for income over P 0 but not over P 250,000
– 20% tax rate for income over P 250,000 but not over P 400,000
– 25% tax rate from income over P 400,000 but not over P 800,000
– 30% tax rate for income over P 800,000 but not over P 2,000,000
– 32% tax rate for income over P 2,000,000 but not over P 8,000,000
– 35% tax rate for income over P 8,00,000
Noteworthy, fringe benefits are not to be included in employee taxable income. Moreover, all your dues must be paid to the BIR on the due date to deter penalties and late-payment fees.
Income subject to final tax
The maximum tax rate for income of resident and non-resident aliens on income subject to final tax is 20%. Income subject to final tax usually covers passive investment income. Additionally, for non-resident aliens not engaged in trade or business in the Philippines, tax rates are at 25%.
Business income tax rates
Individuals, either resident or resident alien, who practice a profession or are self-employed are also subject to income tax rates previously mentioned under compensation income.
However, any individual with gross sales and other income not exceeding the Value Added Tax threshold of P3,000,000 may opt to be taxed according to either of the following:
– 8% tax on gross receipts/sales and other non-operating income that exceeds P250,000 instead of the graduated income tax rates and business tax.
– the graduated tax rates as mentioned under compensation income
Below are other reminders and things that you need to take note of as a foreign business owner in the Philippines.
• 13th-month pay and benefits for employees
Before tax season, make sure to gather all your receipts and the payroll for employees stipulating all the contributions you, as an employer, have made as well as the 13th-month pay. Submitting employer contributions toward employee benefits may allow you to be granted a tax exemption.
• Year-end adjustment
As the calendar year comes to a close, it is important to get all accounts in order. Make sure to carry out the necessary payroll services adjustments as well as adjustments to other entries if necessary. This leaves you less susceptible to filing an erroneous tax return.
Proper preparation of Financial Statements
Essential to tax season are the properly prepared financial statements, which all businesses located in the Philippines must comply with. Make sure that the accounting and bookkeeping in you general ledger are in order to aid in the proper preparation of Statement of Financial Position, Statement of Changes in Equity, Statement of Cashflows, and Income Statement.
If you are in need of any additional assistance like auditing your ledgers, don’t hesitate to seek professional help from in-house accountants or outsource accounting services in the Philippines. You may call our team at UNA for guidance from certified public accountants. Take advantage of our free 30-minute consultation.